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Striking Confidence Gap Between Advisors, Consumers in September

A striking gap in confidence has opened between financial advisors and U.S. consumers, and economic data released Tuesday spells out how far that distance has grown over the last month.

Advisor confidence in the U.S. economy and the stock market rallied in September, climbing to its highest level in the last six months, according to the Rydex|SGI AdvisorBenchmarking survey. The advisor confidence index was 109.08 in September, up approximately 16% from its 16-month low of 93.8 in August.

However, the Conference Board's consumer index for September dropped precipitously to 48.5 in September--its lowest level since February--compared to a revised 53.2 in August from an original reading of 53.5. The headline number was well below economists' expectations for a reading of 52.5. Forecasts ranged from 48.0 to 55.0, according to a Thomson-Reuters poll.

The confidence gap has arisen due to the difference between what market players are experiencing in global activity versus U.S. consumers' struggle to regain the financial ground they lost in the 2008-9 recession. While economists and analysts see a modest recovery, consumers see weak job growth and deteriorating business conditions.

'The Consumer Always Lags a Bit'

"The consumer always lags a bit in finding out that the economy is heading into a soft spot, and the consumer lags when there's better news around the corner," said Jim Kelleher, director of research for New York-based equities research firm Argus Research.

"The market has been fairly good in September, and that is consistent with the market's longstanding ability to climb a so-called 'wall of worry,'" Kelleher added. "This summer was characterized by lots of talk: double-dip

recession and possible deflation. At the same time, on a global basis, U.S. consumers may have been unaware of some very encouraging demand trends and signs of economic recovery, particularly in the growth economies overseas."

The Conference Board's consumer expectations index dropped to 65.4 in September from 72.0 in August, and the present situation index fell to 23.1 from 24.9. Meanwhile, the "jobs hard to get" index rose to 46.1 from 45.5 and the "jobs plentiful" index decreased to 3.8 from 4.

"September's pull-back in confidence was due to less favorable business and labor market conditions, coupled with a more pessimistic short-term outlook," said Lynn Franco, director of the Conference Board Consumer Research Center, in a statement. "Overall, consumers' confidence in the state of the economy remains quite grim. And with so few expecting conditions to improve in the near term, the pace of economic growth is not likely to pick up in the coming months."

Advisor Confidence Returns in September

In September, however, advisor confidence returned. Results of the advisor survey released by Rockville, Md.-based asset manager Rydex|SGI suggested that advisors may be more comfortable with--and better able to manage--economic volatility than earlier in the year.

All four measures of the ACI increased in September, with the most optimistic forecast, up 13.23%, centering on the 12-month economic outlook. The other components showed the current economic outlook up 6.61%, the six-month outlook up 7.98%, and the stock market outlook up 4.95%.

One survey respondent, Rob Siegmann of Financial Management Group in Cincinnati, Ohio, said he expects "a slow, steady recovery with some relatively small bumps along the way."

The Rydex|SGI advisor survey also asked advisors about their views on how both new business tax cuts and the country's unemployment will affect the economy for the remainder of the year. Seventy-five percent of advisors said that business tax cuts will help the economy. The responses also revealed that about half (54%) of advisors think that unemployment will remain where it is. One-fourth of survey participants (25%) said they think unemployment will get worse and will hurt the economy.